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Old 28th July 2010, 20:24   #31
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Do you want to say public sector entities do not come under CAG preview?
Not all them do and not in all areas for the ones that do come under CAG purview. That's why I suggested you read the charter and the act.


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CAG usually investigates public -private patnerships to make sure govt is getting it's proper share.
Maruti is not a partnership between Suzuki and LIC. LIC is one among thousands of shareholders. A CAG audit will be limited to ensuring that receipts are properly accounted for in a company's books. Only expenditures get a close scrutiny.
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Old 29th July 2010, 09:52   #32
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What regulator are you talking about here? SEBI? They don't have any authority to 'advice' any company on business strategy. But I suppose LIC can do something if they understood the business.
Well SEBI regulates stock market and it can perview only if there is some irragularity related to stocks.
But then there are department of company affairs , Companey law board , MRTPC etc.

Surely if Government can dissolved the board of satyam and appoint a new board taking impromptu action based on cooked up account books.
Certain other practices can also be looked in by respective bodies.

Prima facie it is the duty of board members nominated by FI and Government to look in to such affairs but as we all know they prefer to sleep.

Some one here wrote that Maruti should to it's own R&D , It would be prudent to remember when Suzuki share was 50% and as per government appointed Mr. Bhaskarudu ( former MD of B.H.E.L) as MD one of the step he tried was to make indeginious gear box. Suzuki cryed foul and said Bhaskarendu is incompetent and went to Delhi H.C. Government and Suzuki reached out of court settlement and Mr.Bhaskarendu was removed by year end as per agreement.
It is noteworthy that Mr.Bhaskarendu had vast experinece of running a bigger and more profitable company with far more complex technology then Suzuki and calling him incompetent in public was not the best way but still the United Front government of that time was weak and did not stick to it's guns.

So it is very clear that Suzuki's intention is to milk by means of royalty and it will never allow Maruti to create any replacement technology.

Getting alternative technology is not too difficult , Maruti can still get gearboxes from same source from where it is getting Diesel Engine or it can go to some independent 3ed party company for tech licensing like ZF of gearbox or AVL of Austria for engine just like others are doing.

Still if Suzuki wants to charge abnormally high Royalties there is a more ethical and legally sound way , They can raise their stake to 75% buying out other major shareholders or still better 100% and getting de-listed and then can charge whatever royalty they want from themselves.

Last edited by amitk26 : 29th July 2010 at 09:54.
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Old 29th July 2010, 10:16   #33
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Still if Suzuki wants to charge abnormally high Royalties there is a more ethical and legally sound way , They can raise their stake to 75% buying out other major shareholders or still better 100% and getting de-listed and then can charge whatever royalty they want from themselves.
This is a business decision and no govt. body can step in to investigate unless there is prima facie evidence of irregularity. There is nothing illegal or irregular about what Maruti or Suzuki is doing here. But the shareholders obviously don't appreciate the business decision which is reflected in the beating the stock took.
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Old 29th July 2010, 10:29   #34
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@amitk26, excellent post there! Totally agree with you.

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Where do you thing LIC got it's initial investment from.
@airbender, I think you are under the assumption that LIC was founded by GOI using the taxpayer's money. It's not.

The first-ever insurance company in India was established in Culcutta in 1818 by one Mr.Bipin Behari Dasgupta. Before 1947 ten other companies were also established in the LI sector; all were private, all offered their services mainly to the Europeans, and charged Indians heftier premiums.

In 1955, there was this high-profile lawsuite against an LI company MD Mr.R K Dalmia, who was also the then owner of Times of India alleging insurance fraud. The court found Dalmia guilty and sentenced him 2 years RI. Subsequently insurance frauds were brought into the attention of the parliament.

Eventually, the Parliament of India passed the Life Insurance of India Act on 06/19/1956, and the Life Insurance Corporation of India was created on 01/09/1956, by consolidating and nationalizing the life insurance business of 245 private life insurers and other entities offering life insurance services.

Totally ...

Last edited by sandeepmdas : 29th July 2010 at 10:33.
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Old 29th July 2010, 10:32   #35
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Originally Posted by Gilead View Post
This is a business decision and no govt. body can step in to investigate unless there is prima facie evidence of irregularity. There is nothing illegal or irregular about what Maruti or Suzuki is doing here. But the shareholders obviously don't appreciate the business decision which is reflected in the beating the stock took.
Well because shareholders are not active and regulatory mechanism is paper tiger that is the situation , If another major shareholder raises issue definitely action can be taken under various rules of corporate governance.

The problem is all the independent directors and institution investors keep mum. India has very poor track record of corporate governance and preventing malpractices.

Abnormally high CEO salaries and Executive's perks , Abnormally high royalties / paouts a favoring any particular majority share holder come under the general term of corporate malpractices.
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Old 29th July 2010, 14:13   #36
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While it does look like a big chunk is being appropriated by Suzuki as royalty, would not the royalty paid to Fiat for the hugely successful (in Suzuki cars) MJD engine form a good part of this ?

Also, don't most foreign companies operate in a similar manner with their constant effort being to squirrel away back home most of the profits either as royalties or dividends ?

Regarding R&D, I am not sure what effort is being taken by Tata, when they are hugely dependent on the tech. expertise of partner Fiat ? The heart(engine) of their cars is Fiat, now even the gear-box is from Fiat. What else is there to do R&D in ? The body shell and interiors ? Their own Dicor is long forgotten.
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Old 29th July 2010, 14:46   #37
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Originally Posted by supremeBaleno View Post
While it does look like a big chunk is being appropriated by Suzuki as royalty, would not the royalty paid to Fiat for the hugely successful (in Suzuki cars) MJD engine form a good part of this ?

Also, don't most foreign companies operate in a similar manner with their constant effort being to squirrel away back home most of the profits either as royalties or dividends ?
You can search the news reports to check exactly how much MSIL balance sheets show as outgo to Suzuki as Royalty and deduct it from total royalty cost to find FIAT Royalty out of it.

In late 90s the tussle between Suzuki and then MD of MSIL was on the issue of localization of gearbox and government reached out of court settlement by removing the MD.

Well I hope you do understand dividends is a different matter altogether. The issue we are discussing is Suzuki appropriating more money in Royalty before dividend is payed out. If it is divided then it will be distributed in proportion to share holding.

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Regarding R&D, I am not sure what effort is being taken by Tata, when they are hugely dependent on the tech. expertise of partner Fiat ? The heart(engine) of their cars is Fiat, now even the gear-box is from Fiat. What else is there to do R&D in ? The body shell and interiors ? Their own Dicor is long forgotten.
I appreciate your effort on Tata bashing which is quite unrequired and off-topic on this thread but they do some R&D and created an engine and gearbox of thier own in 1998 for passenger car, 3.0 Liter Turbo , 2.0 TCIC , 2.2 VTT Dicor, 2 cylinder nano and 1.4 Dicor are some others. Offering engine options in product range from 3ed party does not exactly mean they don't do R&D.

While in case of Tatas they may sometime succeed or sometimes fail but point is that they try and do some R&D.
In case of MSIL , Suzuki blocks effort of local R&D as seen in the court case and subsequent removal of government appointed MD and there lies the key difference.

Also one need to remember Maruti enjoyed near monopoly for some 20 years because government was partner , till date the defination of small car and excise duty structure is tailor made to suit Maruti.

Not all MNC subsidiary work this way , In case of 100% subsidiary parent is more concerned about profits as it owns it, In case of MSIL Suzuki wants to siphon off maximum before fare share is given to others.

Last edited by amitk26 : 29th July 2010 at 14:47.
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Old 29th July 2010, 15:02   #38
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@supremebaleno Indigo e-CS has their own 1.4 CR engine, which is BS IV, and it is acclaimed to give the highest FE of any 3-box(or even hatches).
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Old 29th July 2010, 15:23   #39
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Quote:
Originally Posted by supremeBaleno View Post
While it does look like a big chunk is being appropriated by Suzuki as royalty, would not the royalty paid to Fiat for the hugely successful (in Suzuki cars) MJD engine form a good part of this ?
Quote:
Originally Posted by amitk26 View Post
You can search the news reports to check exactly how much MSIL balance sheets show as outgo to Suzuki as Royalty and deduct it from total royalty cost to find FIAT Royalty out of it.
MSIL does not pay any royalty fees to FIAT. The licensing agreement for the MJD engines is between MSIL and Suzuki Japan.

The MJD was developed by the Poland based Fiat-GM Powertrain, a joint venture between GM and Fiat. This occurred during the time period when GM used to own a stake in Fiat. Suzuki (GM had a 20% stake in it) also invested some money in this project. In return for this investment Suzuki was granted full license to build and market the 1.3 litre version of the MJD in its small cars.

Later on GM bought itself out of Fiat and also sold majority of their stakes in Suzuki. But GM still held a 50% stake in the Powertrain company. Suzuki now an outsider, failed to reach an agreement with either Fiat or GM for further tech transfer for the manufacture of bigger MJD engines and this is the reason why Suzuki/Maruti don't have any MJD engine larger than 1.3L.

Last edited by harishnair : 29th July 2010 at 15:27.
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Old 29th July 2010, 15:52   #40
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Quote:
Originally Posted by amitk26
Well I hope you do understand dividends is a different matter altogether. The issue we are discussing is Suzuki appropriating more money in Royalty before dividend is payed out. If it is divided then it will be distributed in proportion to share holding.
IMO both lead to outflow of funds from India to the parent. And regarding royalty, are we competent enough to judge whether the amount matches the tech. know-how provided, to be able to say that excess is charged ? Eg., the K-series engine in its various cc incarnations is proven to be not only a nippy engine, but amazingly FE. This obviously has a cost to it, just that we can debate on how much it should be priced at.

As long as MSIL gives us good cars that stack up or perform better than the competition, I am OK. The royalty thing would be a share-holder's worry and I don't own stock in MSIL (have stock in Tata Motors though).

Quote:
Originally Posted by amitk26
I appreciate your effort on Tata bashing which is quite unrequired and off-topic on this thread but they do some R&D and created an engine and gearbox of thier own in 1998 for passenger car, 3.0 Liter Turbo , 2.0 TCIC , 2.2 VTT Dicor, 2 cylinder nano and 1.4 Dicor are some others.
That was a question and I am not sure why you think it is bashing. And relevance of bringing in Tata was because in the previous pages of this thread, Tatas were made out to be the stalwarts in automobile R&D. If all these engine options were all that great, wonder why their best-selling cars go out with the so-called Quadrajet.

Quote:
Originally Posted by amitk26
While in case of Tatas they may sometime succeed or sometimes fail but point is that they try and do some R&D.
As a car-buyer, I am not plonking my hard-earned money on a product that could fail just because the company 'tries doing' R&D. I would rather stick with a proven product, even if it means the tech. is imported.

Quote:
Originally Posted by amitk26
till date the defination of small car and excise duty structure is tailor made to suit Maruti..
This is the most funny thing I hear on various threads. Almost all manufacturers today have in the market cars that meet this stipulation and anyone is free to use that benefit. This is by no means a Maruti monopoly.
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Old 29th July 2010, 16:27   #41
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Originally Posted by supremeBaleno View Post
IMO both lead to outflow of funds from India to the parent. And regarding royalty, are we competent enough to judge whether the amount matches the tech. know-how provided, to be able to say that excess is charged ? Eg., the K-series engine in its various cc incarnations is proven to be not only a nippy engine, but amazingly FE. This obviously has a cost to it, just that we can debate on how much it should be priced at.

As long as MSIL gives us good cars that stack up or perform better than the competition, I am OK. The royalty thing would be a share-holder's worry and I don't own stock in MSIL (have stock in Tata Motors though).
If you might have noticed the discussion was about the corporate malpractice and Royalty payment and not exactly on the issue of consumer satisfaction or the quality of technology. If some consumers are happy with a product that does not mean that allegations of corporate malpractices should be brushed under the carpet.
Finencial papers and people in general are qualified to discuss the Royalty if it is abnormally higher then other competitors.

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Originally Posted by supremeBaleno View Post
That was a question and I am not sure why you think it is bashing. And relevance of bringing in Tata was because in the previous pages of this thread, Tatas were made out to be the stalwarts in automobile R&D. If all these engine options were all that great, wonder why their best-selling cars go out with the so-called Quadrajet.
On this thread I do not recall seeing Tata before this neither it is relevant.
Let me assume for sake of discussion that your assertion is true and Tata is 100% dependent on FIAT then also this just strengthens the case against Suzuki because the nearest rival of MSIL is not bleeding due to royalty payout despite fully dependent on 3ed party for technology.

Coming to point of Tata-FIAT if you compare numbers best selling models have their own technology and high end ones have FIAT engine but this is irrelevant because Tata Motors profitability and dividend payout is not yet affected due to any Royalty payment.

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Originally Posted by supremeBaleno View Post
As a car-buyer, I am not plonking my hard-earned money on a product that could fail just because the company 'tries doing' R&D. I would rather stick with a proven product, even if it means the tech. is imported.
It is your PoV you may not be happy about certain company but there are thousands of others who are but is this the point here ?

When the point of the thread is to discuss the Royalty issue how good or bad the car is does not matter.

For instance Satyam provided excellent IT services at competitive costs but the account book was cooked and issue was related to shareholders so shall people bring in the quality of Satyam IT services whenever there is a discussion on creative accounting? would it be prudent to discuss some one else like Wipro and TCS in that discussion ?

And you belive Maruti or Suzuki has that cutting edge technology ? A car which needs service every 5K and sells primarily due to service availability and trails behind others in terms of features can not be called technological marvel by any chance.

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Originally Posted by supremeBaleno View Post
This is the most funny thing I hear on various threads. Almost all manufacturers today have in the market cars that meet this stipulation and anyone is free to use that benefit. This is by no means a Maruti monopoly.
If you care to read the full sentence Maruti survived for more then 20 years with 80+% market share due to governments policy. Others were forced to create products which meets the criteria of small car which was tailor made for Maruti .

An unbiased thinking government would have fixed some other criteria for excise concessions which is beneficial to society such as fuel efficiency , Emissions , safety rather then length.

Last edited by amitk26 : 29th July 2010 at 16:29.
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Old 29th July 2010, 17:44   #42
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Until may 2007, the government held a stake in venture(albeit a 10% or so). On the other hand, it(the govt) was making policies, indirectly, through excise duty differentiation.
The government just played the role of a facilitator: and it left the venture patting on its back that indeed it reaped huge returns in stake sale.

And it is hard to believe that the govt policies were not being influenced.

"1988 - During Government finally rejected an application made by the
Company(PAL) to manufacture `SUNNY' model cars of Nissan of Japan"

source:
Premier > Company History > Engineering > Company History of Premier - BSE: 500540, NSE: PREMIER

There may be other specific reasons, but generally one can assume why was it so.


Read the last section, 'why maruti is unique? in the following link.

The Hindu : Business : MUL divestment: a profitable exit

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Old 29th July 2010, 17:51   #43
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Originally Posted by kri$hna View Post
Well said, Sandeepmdas! I always wonder, whats stopping maruti from investing in R&D which in turn will strengthen their roots to consolidate the no.1 position in the market.
They did and came up with a fat *** called as Dzire.
The brand name ensured the sale of this tin wagon.
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Old 29th July 2010, 18:14   #44
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Originally Posted by supremeBaleno View Post
....

This is the most funny thing I hear on various threads. Almost all manufacturers today have in the market cars that meet this stipulation and anyone is free to use that benefit. This is by no means a Maruti monopoly.
I guess people are talking about the time when the norms got established.
Or when there were rumors of they being 'tweaked'. For example, Print Article - Hyundai blows whistle on small car norm
--------------
In what signals an emerging battle among small car manufacturers, Hyundai Motors India Ltd has asked the country's apex auto association to act against moves by "some pressure groups" to change the definition of a small car.A change in definition could jeopardise the Korean company's plans to launch a premium 1.1-litre hatchback car codenamed Pa and lead to huge revenue losses on account of higher excise obligations.


In a letter written to the director general of the Society of Indian Automobile Manufacturers, HMIL Managing Director H S Lheem alleged that vested interests were lobbying the Ministry of Heavy Industry to reduce the stipulated length limit for a small car from the current 4 m to 3.8 m.
Small cars, which include the Santro, Maruti Alto and Wagon R, attract an excise duty of 16 per cent, against 24 per cent for large cars.
Lheem's letter went on to say, "The entire effort and investment that has gone into making a particular model (would) go waste" as a result of any change in norm.
----------------
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Old 29th July 2010, 19:26   #45
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Quote:
Originally Posted by amitk26
If you might have noticed the discussion was about the corporate malpractice and Royalty payment and not exactly on the issue of consumer satisfaction or the quality of technology.
And why do you think royalty is paid ? My understanding is that royalty is paid for quality technology, which was why I saw the relevance.

Quote:
Originally Posted by amitk26
If some consumers are happy with a product that does not mean that allegations of corporate malpractices should be brushed under the carpet.
No one's talking about brushing anything away. But I don't know how you are so sure that this is a malpractice on the lines of account-fudging by Satyam.

Quote:
Originally Posted by amitk26
On this thread I do not recall seeing Tata before this neither it is relevant. Let me assume for sake of discussion that your assertion is true and Tata is 100% dependent on FIAT then also this just strengthens the case against Suzuki because the nearest rival of MSIL is not bleeding due to royalty payout despite fully dependent on 3ed party for technology.
Check the 3rd post of this thread for where Tata came in. Also, AFAIK Suzuki-MSIL arrangement is not same as Tata-Fiat and thus not a 1-to-1 comparison.

Quote:
Originally Posted by amitk26
When the point of the thread is to discuss the Royalty issue how good or bad the car is does not matter.
Because when royalty is discussed, I see it as a cost paid for technology that goes into the cars.

Quote:
Originally Posted by amitk26
And you belive Maruti or Suzuki has that cutting edge technology ? A car which needs service every 5K and sells primarily due to service availability and trails behind others in terms of features can not be called technological marvel by any chance.
Hmm, thats a new one. So the service interval decides how good a car is. Which means Hondas that have a 5K service interval must be really bad/obsolete tech. BTW, most Marutis today have a 10K interval for service. Or maybe you are implying that the 15K service interval for the Linea/Punto makes them the cutting edge in auto-tech. LOL.

Quote:
Originally Posted by amitk26
If you care to read the full sentence Maruti survived for more then 20 years with 80+% market share due to governments policy.
No one is denying the Govt. support it enjoyed, but hey that's old hat. Today it is a level playing field. So why not talk about the present than keeping on harping about the situation 25 years ago ?

Quote:
Originally Posted by amitk26
Others were forced to create products which meets the criteria of small car which was tailor made for Maruti .An unbiased thinking government would have fixed some other criteria for excise concessions which is beneficial to society such as fuel efficiency , Emissions , safety rather then length.
I think only good has come out of this decision - we now have a range of small cars that are FE and good for the environment. And I dont think any manufacturer thinks they are being forced. They want the benefits, they go for it, else they are free to not abide. I think of this as on the lines of the Kei car norms in Japan.
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